Accounting Logics for Business and Industry: Role Chartering

In most organizations, decisions that need to be made are often left unresolved. People who should be collaborating instead circle around one another warily — distrustful and hesitant.

A tool known as a role charter can help ensure both effective decision making and collaboration. Role charters are simple instruments that enable tough conversations to take place so that key tensions among managers and leaders can be resolved. These tensions arise out of the complexity of matrix organizations — in which employees have multiple bosses — and the increasing need for collaboration across all organizations. But rather than address tensions, traditional human resources processes often exacerbate them.

Role charters clarify accountabilities and decision rights and establish both behavioral expectations and metrics to ensure success. As such, role chartering can be a powerful means of achieving high performance.

The End of Confusion: Beyond Job Descriptions

Role charters are not job descriptions. Job descriptions are not directly linked to an organization’s vision, goals, and metrics. Role charters are active living documents that are meant to imbue strategy and vision into the daily work and purpose of the organization. They describe roles as they should be, as well as the collaboration required among them.

Employees write their own role charters in coordination with their superiors and colleagues. Job descriptions, in contrast, are often produced without the participation of the employees to whom they apply.

Designing for Performance

In an organization’s structure is its skeleton, then individual capabilities are its muscular system, providing energy and vitality, and roles and collaboration is its nervous system. The best design will collapse if the right people with the right skills and not in the right jobs, and if their roles are unclear, overlapping, or confusing.

The power of the role charter lies in its creation. First, the CEO (or business unit head) translates overall corporate objectives into five related components of his or her role:

Accountabilities that are critical to the success of the organization and for which he or she is solely responsible.
Accountabilities that are critical and shared with other business unit heads.
Key performance indicators (KPI’s) used to measure the execution of these accountabilities.
The decision rights that he or she requires in order to execute the individual and shared accountabilities.
Leadership behaviors deemed critical to the success of the enterprise.

These accountabilities, metrics, decision rights, and behaviors serve as the “charter” for the leader, who them meets with all of his or her direct reports, sharing the charter and discussing each overall corporate objective. Next, all of these business unit heads write their own charters. This is important as those that know their roles best know how those roles overlap with others in the organization, the key metrics by which they should be judged, and the decision rights that they own, influence, or can veto. This forces leaders and their reports to consider decision rights, accountability, behavior, and metrics simultaneously in a single conversation. It exposes issues that slow decision making and inhibit collaboration, and defines the expected achievements of the business units.

When all the direct reports have completed their charters, each presents his or her individual charter at a meeting convened by the leader. This is not just another meeting. It is a whiteboard on which the ambiguities, conflicts, and confusions that naturally exist in any organization can come to the surface. It is here that the tensions among the CEO and business unit heads, and across the organization can be resolved.

At the conclusion of the meeting, all participants should have a finished charter that dovetails with those of the other participants. Each charter lays out individual accountabilities with attached metrics, as well as expected leadership behaviors. When a responsibility is shared, the charters indicate who “owns” the final decision, who can influence it, and who can veto it. The charters give these joint owners not only shared accountability but also shared resolve.

The chartering process is effective is two ways. First, it creates alignment on the accountabilities from the top of an organization to the bottom. Because the process is structured, proceeding layer by layer, people throughout the organization are on the same page. And because employees have had a role in the process, they have a stake in seeing that the transformation succeeds. Discovered insight is always more valuable then insight delivered from above. In addition, the chartering process creates alignment on accountabilities across the organization by leaving employees with a common understanding of their respective roles and a newfound appreciation for one another’s point of view.

The Impact of Role Chartering as an Alternative to Conventional Budgeting

Most companies make budgets for three very different reasons; target setting, forecasting and resource allocation. Those budget numbers represent a set of targets, a forecast of what the future might look like, and an allocation of resources for next year. But these are all different things. The three purposes can’t meaningfully be handled in one process resulting in one set of numbers.

A target is what we want to happen. A forecast is what we think will happen, whether we like what we see or not. And resource allocation is about trying to use our resources in the most optimal and efficient way.

The solution to this problem is dead simple: Use role chartering to separate the three purposes, which make it possible to optimize each one in much more tailored processes. This allows for different numbers, updated on different frequencies and time horizons in each of the three processes.

Why should cost and funding decisions be made before they have to? Isn’t it better to make them as late as possible, when the best information is available — not only about the new project or activity up for decision — but also about the capacity to fund it or staff it?

Role charters make an on-demand system of allocation of resources possible, minimizing costs with real time estimates, forecasts and trends at the exact time they are needed.

Further, role chartering provides a much bigger and more flexible decision authority and a much more dynamic rhythm than the calendar driven conventional budgeting approach that allocates resources upfront and treats those responsible as parties to a fixed performance contract.

Examples of financial metrics aimed at controlling costs incorporated into role charters include “burn rate” guidance ("operate within this approximate activity level"), unit cost targets (“you can spend more if you produce more”), profit targets (“spend so that you maximize your bottom line) or simply no target at all (“we’ll monitor cost targets and cost trends and intervene only if necessary").

Alignment is not about target numbers adding up as treated in conventional budgeting; it is about creating inspiring clarity about which mountain to climb within the highly defined boundaries for the costs and the means used to accomplish a mission — and also the overall intent used to guide it. This can be provided by role charters as an efficacious alternative to the cumbersome calendar driven two dimensional hierarchical control and upfront funding model of conventional budgeting.

Horizontal Conversations, Vertical Implementation

Employees are accustomed to talking with their supervisors or their direct reports and to working in teams. It is less common for them to talk honestly with their peers about how things should get done in the organization — who, for example, has the final say and who merely influences decisions. Without the forcing hand of the role of charters, however, these conversations are unlikely to occur, especially across organizational boundaries. The role chartering process is a structured way to encourage honest conversations, bringing personal or hidden agendas to the surface.

The best way to implement role charters is through the layer-by-layer procedure described above. This method ensures that business unit heads are aligned and that they transfer that alignment to the employees below them. But this is not top down management by another name. In the cascading process, employees at all layers have meaningful roles and clear decision making authority, thereby becoming invested in the outcome.

Action Plans with Buy In

Charters clearly define roles, accountabilities, behaviors, and metrics. They are action packed and reflect real world workplace tradeoffs in a way the job descriptions rarely do. Because employees participate in the drafting of their own charters, they are like chefs who eat their own cooking: if the charters are not realistic, they’re the ones who will pay the price.

Fewer is Better

Rather than lay out a laundry list of accountabilities and metrics, role charters focus on the most important ones. The process is like a funnel, with the conversations and charters at each layer narrowing done to what matters most. When CEO’s are accountable for too many things, they cannot execute them effectively. Likewise, when there fails to be a single point of accountability, it is easy to point fingers rather than resolve issues.

By focusing on the accountabilities, metrics, decision rights, and behaviors that matter most, role charters give employees clear guidance on their responsibilities, on how they need to act, and on how they will be judged and rewarded. It is all there in black and white and discussed openly during the workshops. Even necessarily ambiguous issues — the shared accountabilities and decision rights — are laid out and agreed to in such a way that all those involved know their roles.

It Starts at the Top

Role chartering should start at the top of an organization. Leaders are role models. If they are not committed to the role chartering process, employees will pick up on their ambivalence and amplify it. It is unrealistic to expect employees to work across organizational boundaries if their managers can’t or won’t do so.

But role chartering should not stop at the top. While is helpful for all business unit heads to be on the same page, the real power of role charters is their ability to inject new ways of working throughout an organization. It may be impractical to implement role charters from top to bottom, but the process should be conducted at a minimum of two management layers, and preferably three. Unless the effort reaches into the body of an organization, it is unlikely to produce lasting and meaningful change.